A recent survey of consumer sentiment reached a 22-month high of 71.6 in July, driven by a decline in inflation and strong employment growth.
According to the University of Michigan, the final reading of the sentiment survey slightly decreased from an initial 72.6 in early July. However, it was a significant improvement from the 64.4 recorded in June.
This consumer sentiment survey offers insights into how individuals perceive both their personal finances and the broader economy.
After hitting an all-time low of 50 last year, the index has experienced intermittent increases. It even reached as high as 101 shortly before the start of the COVID-19 pandemic in 2020.
Key Details
One important metric that measures consumers’ perception of the current state of the economy stood at 76.6 at the end of July, slightly lower than its initial reading of 77.5.
Additionally, the measure regarding expectations for the next six months fell to 68.3 from the initial value of 69.4 recorded in early July.
Nevertheless, both indexes showed significant improvement compared to June.
Based on the survey results, Americans anticipate an average inflation rate of 3.4% over the next year.
The Big Picture
Americans are becoming less concerned about the possibility of a recession. With low unemployment rates, increasing wages, and alleviated inflationary pressures, the overall economic landscape seems positive.
However, it’s crucial to note that the economy may face turbulence in the future due to planned interest rate hikes by the Federal Reserve to further curb inflation. Historically, higher borrowing costs have resulted in reduced business investment and consumer spending, increased layoffs, and slowed economic growth.
Looking Ahead
Joanne Hsu, director of the survey, stated, “Overall, the significant rise in sentiment can mainly be attributed to the continued deceleration of inflation and stability in labor markets.” However, sentiment among lower-income consumers experienced a decline.
Market Reaction
In response to the positive sentiment survey, the Dow Jones Industrial Average (DJIA) and the S&P 500 (SPX) both rose during Friday trades.